Survey of the Ethiopian Economy: Review of Post-Reform Development (1992/93 - 1997/98)

Abstract

The Addis Ababa Retail Price Index which was constructed based on the Household income. Consumption and Expenditure Survey of 1963 had beer, used as an indicator of overall price changes in Ethiopia till 1996/97. According to this index, annual Dries changes or inflation had remained low in Ethiopia compared to most developing countries. Throughout the 1980s. for instance, the highest rate of inflation recorded was 18.5 per cent during the drought year of 1984/85 Other years of relatively higher inflation were 1981 32 and 1988/89 when the general index showed a growth rate of 7:3 and 9:5 per cent, respectively. Otherwise. inflation was less than 5 per cent and even fell below zero in some years like in 1986/87 (-9 5 per cent). The first two fiscal years of the 1990's were, however, marked by a relative’y higher inflation (about 21 per cent in both years) mainly due to social and economic disruptions which resulted from the heightened civil war culminating with the overthrow of the Derg in May 1991. Following the attainment of peace and stability and the recovery in economic performance, growth in the general price level has slowed down. In 1992/93, inflation as per the old Add's Ababa Consumer Price Index stood at only 10 per cent, an unexpected out turn •n the face of price liberalization and Other macro-economic measures introduced during the period In 1993/94 too, inflation further declined to 1 2 per cent largely because of the preceding year's good crop harvest. The fiscal year 1994/95. witnessed the highest cost reform rate of inflation which stood at 134 per cent which, however, subsided to a mere 0 9 per cent in 1995'96 and further to -6.4 per cent in 1996/97 The occurrence of the 1993/94 drought and the windfall gain in export earnings in 1994/95 which rushed up money supply are believed to be the major reasons behind the 13 4 per cent inflation n 1994/95 Due to a number of shortcomings associated with the 1963 based Addis Ababa Consumer Price Index, particularly problems related with coverage and classification and sheer obsolescence to represent current consumption pattern in the country, a new price index at the country, urban and rural levels was developed in 1996/97 According to the new index, the inflation rate stood at 2.3 per cent in 1997/93 fiscal year which is still quite low. The rate of inflation recorded in 19.97/98 was 4.23 per cent and 3.85 per cent in urban and rural areas of Ethiopia, respectively. In general, the rate of change in overall once level (inflation) in Ethiopia has been traditionally moderate. Although the reasons behind this are difficult to tell with certainty, the low levels of economic development coupled with the degree of monetization of the economy, and the nature of the macroeconomic policies pursued are believed to have strong bearings on this outcome.